From veteran publishing consultant Mike Shatzkin:
The sales-and-returns convention by which most books are sold by most publishers to their retail and wholesale accounts is too often described as “consignment”. It actually isn’t. Actual consignment terms would give us a quite different supply chain, and we may be closer than most people imagine to shifting to it.
Although major trade accounts do purchase their stock from publishers with the rights to return unsold stock for full (or nearly full) credit, this is quite different from true consignment in a number of ways.
1. The publisher’s customer is on the hook for at least some freight cost for shipping the goods. Most customers would pay the shipping cost to receive the books in the first place and almost all would pay the cost to send them back.
2. For almost all their customers, the publishers are paid faster than the customer recovers their investment (which would be by selling to the end customer for a retailer or by selling to and then collecting from the next holder of the inventory or a final customer for a wholesaler). So the publisher receives cash which is an actual capital investment by their customer. True consignment would not require that investment.
3. Because the retailer or wholesaler is providing the capital investment for the books on the store or warehouse shelf, the customer decides on prices and quantities. The publisher has to “sell” the customer on parting with some of their limited funds for inventory investment. True “consignment” would see the publisher deliver the inventory (pay the freight) to the customer and, if they subsequently wanted it returned, pay the freight to bring it back. The customer would be responsible for receiving the inventory, shelving it, paying for anything sold or lost, and packing it back up when asked to return it. But it wouldn’t be commercially practical for the account to determine titles and quantities if they were at no risk or penalty for taking in excess stock. Overstocking, which ultimately would require the publisher to overprint and eat inventory on every title, would be routine if the accounts decided what to receive on consignment. If there’s no cost, why should they risk being out of stock?
So, if the terms were “true” consignment, where the inventory risk and investment remained with the publisher, it would also require that the publisher decide on the titles and quantities to be consigned.
. . . .
This is a topic worth considering because we as an industry could be on the cusp of switching to this kind of commercial arrangement. For publishers today there are three major accounts which drive the business for most of them: Amazon, Barnes & Noble, and Ingram. Amazon has had an “Advantage” program for years that entices smaller publishers to offer consignment terms. Barnes & Noble has, with limited success, been pushing publishers toward consignment inventory in their distribution centers for years. And Ingram already holds a ton of consigned inventory through its largest-in-the-industry distribution business. They are already a very progressive company and would undoubtedly see the benefits of consignment for all their wholesale inventory as well.
. . . .
From the accounts’ (Amazon, B&N, Ingram) perspective, there are two big “risks” in going to consignment and ceding the inventory decisions to publishers. The less expensive one is that they might actually have to physically hold (warehouse, but not invest in) more books to achieve the same sales level. I say “might” because the publisher could conceivably operate with leaner inventory on many of the fastest-moving titles when replenishment inventory can be supplied without the bureaucratic need to get to a buyer and get an order.
The more serious risk would be of not having books that would sell that their own buyers would have put on their shelves. But, of course, any publisher would want to put in the most likely to sell, so as long as the account didn’t totally lose its ability to know what it could sell, that information could find its way to the buying decisions.
This all boils down to the practice of “demand planning”, which could also be called “sales predicting”.
. . . .
For Barnes & Noble, the information the publisher has about its own marketing efforts and how the book is doing in general in reviews and in cyber-discussion — or even how it is selling in other locations in the marketplace — is almost always secondary to internal B&N merchandising information. Is the book on model stock, an automated reorder capability where the sale of a copy triggers replenishment? Is the book displayed prominently in the stores, or, at the other extreme, is it in the stores at all? Is the book distributed across all geographies and store sizes? All of these elements have a big impact on the demand B&N distribution centers will see, whatever the other signals say about a title’s inherent appeal and marketing experience.
. . . .
There are few, if any, publishers today who are equipped to make the decisions to manage consignment inventory effectively at their accounts’ warehouses. But there are compelling reasons for the industry to shift to doing things that way. Fortunately, doing many of the right things will come naturally to the publishers if the tables get turned. It takes instinct more than genius to keep quantities lean if you’re on the hook for the freight in and out and you don’t need anybody’s permission to ship more copies in when they’re needed.
Link to the rest at The Shatzkin Files
VMI = Vendor-Managed Inventory in this context, for those not in the know.
Thank you. The only VMI I know is Virginia Military Institute.
Mr Shatzkin didn’t comment on an interesting wrinkle of print-on-demand. The price of a POD book is set by the publisher. The commission paid to the publisher per copy is fixed to that price. If a book is selling well, the printer/distributor can on their own initiative do a larger print run at a lower cost per copy, pocket the savings, and hope those savings cover the cost of warehousing. The printer/distributor alone assumes the risks and benefits of larger prints runs.
^^^
Gordon read my mind (it’s all small words and poor grammar).
The POD system and responsible inventory management would eliminate the bulk of the returns system issues.
Amazon: we have figured out the best way to sell books is to get feedback from customers and boost visibility accordingly.
Trad pub: okay but…
Trad pub: what if we keep picking the books we think the public will want to buy like we always have
Amazon: I mean…
Trad pub: but EVEN MORE now
Amazon: but
Trad pub: that’ll totally work
Exactly. Mike talks about this book return system as if it just naturally evolved and now needs to naturally evolve into something else.
The most natural system is simply for bookstores to buy books they think will sell, and sell them at a higher cost. (Eating the cost of their own mistakes if the books don’t sell.) The reason for the current system is that publishers want to monopolize bookstore shelves by giving bookstores incentives (free returns) to carry their books. Basically, subsidizing the cost for the bookstore.
But the current system isn’t working because publishers are too often pushing books into bookstores that people don’t want to buy. How does moving to a “true consignment” system solve that problem?
It doesn’t. I suspect that what is really going on is that more and more bookstores are refusing to pay upfront for many titles that publishers want to push, even if they have the promise of being able to return them for full cost. Moving to consignment would make it even cheaper for bookstores to stock books that don’t sell. But to what end? Bookstores can’t survive offering books (even if they are supplied for free) that don’t sell. Customers have too many alternatives and if they walk into stores that don’t have books they want, they will search elsewhere.
The core problem is that far too many books are published and distributed by big publishers without regard to whether people want to read them. Big publishers engage in the ultimate vanity press, pushing out books for every reason (nepotism, literary snobbery, influence peddling) other than there being a market of readers. This is why the move to coloring books (at least people buy those!) is so hilarious.
It solves the BPH’s problem of controlling what shoppers see without paying coop by taking over bookstore shelves. It’s a way to buy storefronts without spending money.
(And squeezing out smaller/newer players.)
I would expect more bookstore closures faster.
It would put inventory selection and (by extension) shelf space right in the hands of the publishers.
I can’t imagine any self-respecting small bookstore putting up with this, because, curation.
I can’t see Amazon putting up with it without significant caveats, that is to say, “If we list your SKU we want to have copies to ship.”
I also can’t see it working in the real world because publishers compete with each other for shelf space. If you give the shelf space directly to the publishers, what mechanism exists for them to resolve disputes? With co-op, they bid against each other. Without that, they would have to directly collude somehow to coordinate who gets what space, and god knows the Big 5 aren’t going to do any such thing…
Oh, they can set up a system similar to the way the movie studios “compete” for release dates.
First, they would agree on a classification system for books, say grade B to Grade F, with each category getting the same amount of exposure: x weeks on front tables, end caps, or cover-out placement followed by y-weeks at the next lowest level etc.
Then they would divvie-up the different kinds of shelf-space by market share: half to the randy Penguin, proportionally less to all others.
After that it would be up to the publishers to decide how they fill their shelf-space by slotting books into the appropriate category and release date for each bookstore. That way they could ensure that each community only sees books that don’t challenge their world-view or offend their political sensitivify.
The publishers would pay a fixed amount for a unit of each shelf space category and a fixed commission per book sold. Pricing would be set by the publisher with sales late in the book’s launch window to clear out slow sellers.
If they set prices and rents properly, they can even ensure each store breaks even with both employees enjoying full minimum wage salaries.
Overprinting and eating inventory happens a lot already.
There is a cost. Physical shelf space isn’t free, and it is limited. Stocking titles that don’t sell would be throwing away money.
So is stockroom space.